Bit[coin]s and Pieces

By William Davis

Like Texas football, SpongeBob cartoons, and Super Trooper movies, some things just grab your attention. Such, regrettably, is the case with crypto-currencies. While we’re proud to claim near complete success in ignoring the likes of Ethereum, Zcash, Ripple, and Litecoin, we’re forced to admit the occasional story about Bitcoin still catches our eye. It’s the train wreck that keeps on wrecking meow.

Allegedly, the first real-world crypto transaction was made in May 2010 when one Laszlo Hanyecz paid 10,000 Bitcoins for two pizzas in Jacksonville, Florida

By way of virtual reminder, Bitcoin was intended to be a currency that didn’t require government backing or support – an anonymous peer-to-peer network that none of the good guys could control. And only the bad guys could understand. Although it’s had “success” as a tradable asset, Bitcoin has been regularly teased by concerns that it isn’t used to pay for much of anything other than criminal enterprise. Naturally, Ohio just announced it’s set to become the first state to accept Bitcoin for tax bills. Uh, can you repeat that?

Allegedly, Vancouver was the first city to boast of installing the first Bitcoin cash machine

True enough, starting last week Ohio businesses can go to the website OhioCrypto.com and register to pay everything from cigarette sales taxes to employee withholding taxes with Bitcoin. Eventually, predicts the genius that passes for the state Treasurer, the initiative will expand to individual filers. Meanwhile, as Bitcoin the tradable asset plunges toward zero, the U.S. Justice Department has launched an investigation into whether the crypto currency’s epic rally last year was fueled in really, really good part by manipulation. Hmmm…Cat Game? What’s the record?

Allegedly, Bitcoin miners get paid a certain number of bitcoins to use a computer program that verifies various transactions around the world

Best we can tell, Justice’s investigation is focused on whether the dramatic rise of digital tokens has been purely driven by actual demand or ginned up by market tricks we can’t begin to understand. Federal prosecutors, on the other hand, can, and they suspect a tangled web involving Bitcoin and a crypto exchange called Bitfinex has illegally been pushing the crypto’s prices higher. But our shenanigans are cheeky and fun!

Allegedly the amount of computing effort expended by cryptocurrency miners – known for some reason as the hash rate — has started falling

Unsurprisingly, scrutiny by our government’s officials – who to their credit have repeatedly warned that the mostly unregulated industry we know is likely rife with fraud — has contributed to Bitcoin’s nose dive from $20,000 last December to around $4,000 this one. Then again, maybe Wall Street has simply concluded the digital currency market was a fad. While it’s likely the block chain will eventually alter financial services, much like Napster changed the music business, at some point the market should wake up and apply rational valuation techniques. Allegedly.

What the numbers are saying…

517

The number of mutual funds that have already announced they will pay out at least 10% of net assets as taxable gains to shareholders

What the father of the index fund is saying…

“If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation.”

“It seems only a matter of time until index mutual funds cross the 50% (of the U.S. stock market) mark. If that were to happen, the “Big Three” might own 30% or more — effective control. I do not believe that such concentration would serve the national interest.”

“There no longer can be any doubt that the creation of the first index mutual fund was the most successful innovation in modern financial history. The question we need to ask ourselves now is: What happens if it becomes too successful for its own good?”

Jack Bogle, founder of The Vanguard Group and creator of the first index mutual fund

What the facts are saying…

Microsoft eclipsed Apple as the largest U.S. company by market value for the first time since 2003. Microsoft closed Friday with a market cap of $851.36 billion, nearly $4 billion higher than the iPhone maker.

Global-equity funds posted a net outflow of $1.1 billion during the week ended Nov. 28 while investors pulled $8.9 billion from money-market funds and $9 billion out of bond funds, according to EPFR data.

Just one in three large-cap mutual funds are doing better than their benchmarks year-to-date, down by nearly half from April.

Open interest in bearish put options that pay out if U.S. oil futures fall below $40 a barrel has doubled.

What folks with an ear to the Street are saying…

“Microsoft’s rebound proves that, while tech is a fast-changing industry, tech companies that reach a certain scale tend to have staying power.”

Heard on the Street columnist Dan Gallagher

FABWC-120318

The views in this commentary are those of Fund Architects. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from Fund Architects or any other investment professional. The information contained within this commentary should not be the sole determining factor for making investment decisions. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, you are encouraged to consult with Fund Architects. Information pertaining to Fund Architects advisory operations, services, and fees is set forth in Fund Architect current disclosure statement, a copy of which is available upon request. Fund Architects, LLC is an SEC Registered Investment Advisory Firm.